Download Five Ways to Ramp Up Fee Income

ISAAK BOND INVESTMENTS, INC.
Five Ways to Ramp Up
Fee Income
A White Paper for Community Banks
By Tim Thomas
9/17/2010
Five ideas to increase non- interest income without taking on additional credit risk
or portfolio exposure
Five Ways to Ramp Up Fee Income and Grow New Product Lines
This from American Banker Tuesday, September 14, 2010:
“What will offset tepid loan demand? How to cover higher regulatory costs? Some of the
nation's top banking chiefs said Tuesday that they are starting to find the answers to these
nagging questions.
A common reply: Sell existing customers more products while investing in businesses that don't
depend on lending, like investment advising and corporate cash management. Bankers also said
they are getting a firmer grasp of how much money they can expect to lose complying with the
Dodd-Frank act and new restrictions on overdraft fees. The changes may not be as costly as
initially expected, and will likely be offset through new fees and products.”
The race is on in 2010 for winning and retaining profitable customers and for finding new
sources of non-interest income to replace what is being taken away through regulation, and for
adjusting your portfolio – particularly commercial real estate exposure – to achieve regulatory
compliance – all while cutting costs.
So it’s time to look at opportunities for outside income – while offering seamless service to your
clients. This is especially true if you can actually add profitable products and services without
adding any credit exposure, or expanding staff, or taxing scarce risk based capital. You’ll get
some great ideas in the next few pages. And we’ll tell you whom to contact to move forward and
get all the details. Take what you need and leave the rest!
Plan 1: Add Wealth Management and Financial Planning services. Wealth management is
very much in demand these days as the population ages and as your customers undergo life
changing events. You don’t have to hire expensive talent to provide these services from some of
the best the very best in the Country. And the Bank can share in the fees.
Plan 2: Add SBA 504, USDA and 7A Lending (but sell the whole loan and transfer the risk).
Suppose you could offer your customers SBA 7A– without taking or retaining any risk to your
own loan portfolio? Suppose you utilized the SBA program as a means of generating significant
fee income - up to 2% on each loan -- without having to worry about SBA processes, internal
staffing, or secondary market gain on sale accounting and the uncertainties of FASB 166? And
you can add the SBA 504 Program – but sell the first lien. The secondary market is “back” at
least through 2011 and you can originate SBA 504 first mortgages for businesses that want to
expand – or build – or renovate – or buy a commercial building. We’ll tell you how to keep the
fee – and sell the risk instead of retaining the 504 first lien on your books.
Plan 3: Add Working Capital Lines for small and midsized businesses – off balance sheet.
Suppose you could offer standard WORKING CAPITAL LINES and assign those credits to a
third party and receive a fee of 80 basis points per annum on out standings? We’ll show you how
and tell you about the product in some detail in this paper.
Plan 4: Add a first class residential origination program but avoid the risks of mortgage
banking. Residential mortgage originations don’t have to be a complex, risky internal bank
function. Our white paper will show you how to outsource legally and professionally for a
steady income stream and satisfied clients.
Plan 5: Add a Small Balance Multifamily Lending Program. The apartment market is doing
well in all but the most distressed job markets in the country. We’ll introduce you to a
wholesaler through whom you can capitalize – without owning any credit risk or inflating your
commercial real estate mortgage portfolio.
Plan 1: Wealth Management with Janiczek and Company’s new Ambassador Program
Typically, wealth management is handled, if at all, by a subsidiary of the bank holding company.
For example, CoBiz Financial, Inc., of Denver offers high end estate planning, wealth transfer
and wealth management under its Financial Designs Ltd. subsidiary. Because of the complexity
of high end client needs and tax matters, FDL itself is a member of M Financial Group, an
exclusive “advisors advisor” serving its member firms by developing products to serve the high
end client.
Fortunately, community bankers do not need to create a holding company subsidiary to offer
fiduciary, fee-based wealth management. Rather than create a FINRA-regulated advisory service
within the Bank, you can now contract with an outside provider. Janiczek & Company, Ltd., is
a fee-only, fiduciary wealth management organization named among the top, best and most
exclusive in the nation multiple times. Janiczek created the Wealth with Ease® System to
provide a simple wealth management solution to high net worth investors.
Janiczek’s company, Janiczek & Company, Ltd., received the 2009 and 2010 “Five Star” rating
for high net worth client satisfaction from Crescendo Business Services, a client research firm, in
their annual survey of 74,000 high net worth subscribers of Colorado Biz and 5280 magazines.
The National Association of Board Certified Advisory Practices just awarded the Company its
“premiere” ranking after a comprehensive review of the organization. Janiczek was named one
of the Nation’s top 250 financial advisors by Worth magazine in October, 2008 and was honored
as one of the Nation’s most exclusive wealth advisors in Worth magazine, October, 2004. His
book, Absolute Financial Freedom was awarded a gold medal as best Business/Finance book of
the year in 2001.
Janiczek & Company Ltd. Is a Registered Investment Advisor (RIA) under FINRA and is
headquartered in Greenwood Village, Colorado.
There are 4.7 million households who have investable assets of $1 million or more. Community
banks typically have at least a few customers who fall into this high net worth investor segment.
In fact, they may be among the bank’s best customers. And as we all learned in Banking School,
the more “touch points” we have with the customer, the more cross sales, the higher our
retention.
High-end clients want unbiased advice and have more advanced investment, financial, retirement
and estate planning and management needs than are provided by most community banks. They
frequently have advisors outside the bank.
Founder Joseph Janiczek’s latest book, Investing from a Position of Strength (Prosperity
Press), makes a compelling case for the logic behind the firm’s approach. For a complimentary
copy of the book, go to www.janiczek.com/freebook/Isaak). Through the Janiczek & Company
Ambassador Network, your bank’s customers can receive expert investment and wealth
management services all packaged into one of three streamlined solutions:
(1) The Complete Wealth Solution™ offers investment management coupled with
comprehensive financial, retirement and estate planning
(2) The Complete Legacy Solution™ offers everything in Complete Wealth Solution for
head of family plus coaching and financial education of adult children so they are
prepared for a sizable inheritance one day, and
(3) The Complete Investment Solution™ which is an investment management program only
for trusts, retirement accounts and established retirement vehicles where other wealth
management type services are not needed.
Janiczek and his team of legal experts drafted and screened Ambassador Network™ structure
and documents so that banks can join without regulatory issues. As an Ambassador, your bank
acts as an advocate for customers needing high net worth investment and wealth management
services and receives an ongoing share of fees for this role for making the introduction and
serving in the capacity as an advocate for the customer. The Ambassador Network is a low cost
and effective way of offering these services, maintaining cross sell relationships and increasing
bank revenues in the process.
For more information, go to www.janiczek.com/AmbassadorCandidate or email
[email protected].
Plan 2: Adding a SBA Capability without Portfolio Exposure
Midwest Business Capital, a division of United Midwest Savings Bank of Columbus, Ohio, is
looking for community banks and commercial mortgage bankers to partner with them as
correspondents and enter the profitable SBA-USDA loan origination field. For banks, the
portfolio exposure is zero because you originate the whole loan either on a brokered or table
funded basis. The non-interest earnings are lower that you’d have if you retained the risky 10 –
25% uninsured portion of the loan – but they are nonetheless substantial – up to 2% in premiums
on a USDA or SBA 7A loan and 1% on the SBA 504 first lien. United Midwest is approaching
this as a balance sheet lender and has the capacity to grow assets while giving their partner
community banks the room to make loans.
Plan 2 Parts 1: SBA 7(A)
The SBA 7(a) loan program provides financing to expand, acquire or start a small business and is
based on several factors, including the ability to repay, the purpose of the loan proceeds, and the
useful life of the assets financed. Projects are secured by a 1st Deed of Trust/Mortgage on
General and Special Purpose commercial real estate, meeting SBA qualifications, having a
maximum Loan to Value of 90%, depending on program parameters. Each SBA lender has a set
of guidelines of their own, although all follow the SBA’s underwriting parameters which are
found in the SOP 5010B (Standard Operating Procedures Bulletin 5010B) on
http://www.SBA.gov.
The program features below apply only to Midwest Business Capital’s wholesale program. For
training, forms and more details contact Jason Charles ([email protected], telephone 801214-6151). Jason’s firm, Horizon West, is the authorized wholesale loan production office and
bank channel manager for United Midwest.
Typical Project Structure:
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75% to 90% LTV 1st DOT/Mortgage
10% to 25% Equity Injection
SBA 7(a) Eligible Use of Proceeds:
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To purchase land or buildings, to cover new construction as well as expansion or
conversion of existing facilities.
To acquire equipment, machinery, furniture, fixtures, supplies, or materials.
For long-term working capital, including the payment of accounts payable and/or for the
purchase of inventory.
To refinance existing business indebtedness that is not already structured with reasonable
terms and conditions.
For short-term working capital needs, including seasonal financing, contract
performance, construction financing, export production, and for financing against
existing inventory and receivable under special conditions.
To purchase an existing business.
SBA 7(a) Ineligible Use of Proceeds:
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To effect a partial change of business ownership or a change that will not benefit the
business.
To permit the reimbursement of funds owed to any owner, including any equity injection
or injection of capital for the business’s continuance until the loan supported by SBA is
disbursed.
To repay delinquent state or federal withholding taxes or other funds that should be held
in trust or escrow.
7(a) Rates/Fees:
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Interest rates are generally adjustable based loans, tied to the Prime Index. Maturities up
to 25 years are available, based upon the use of funds. Fees are based on the total loan
request and calculated on the guaranteed portion of the loan.
Eligible Property Types:
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Office: Professional, Condominium, Medical, Dental and Veterinarian.
Industrial: Heavy and Light Manufacturing, Warehouse and R&D Flex.
Retail: General.
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Special Purpose: Assisted Living Facilities / Adult Care, Day Care Faculties, Restaurants, Funeral
Homes and Hotels/Motels.
Maximum Loan Amount:
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1st DOT/Mortgage – $2,000,000.
Rate Option:
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Prime Based Quarterly Adjustable.
Maturity and Amortization:
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Real estate – Up to 25 Years
Business acquisition – Up to 10 Years
Equipment acquisition – Up to 10 Years
Debt refinancing – 7 to 10 Years
Permanent working capital – Up to 7 Years
**Blended Maturity and Amortization applicable.
Maximum LTV:
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Real estate – Up to 90% LTV
Business acquisition – Up to 80% LTC
Equipment acquisition, Permanent working capital & debt refinancing up to 100% LTC
fully collateralized.
Minimum Debt Coverage Ratio:
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1.25x Minimum Debt Coverage Ratio (“DCR”) for the most recent FYE and Interim
period. The DCR will be based on the underwritten EBITDA of the Small Business
Concern.
Occupancy:
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51% or greater must be occupied by the Small Business Concern.
Borrower /Guarantor Characteristics:
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Prior Ownership and Management Experience.
Minimum FICO 665.
Recourse:
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All loans are Full Recourse and require the personal guarantee of any and all individuals
or entities holding 20% ownership interest or more.
Construction Financing:
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Available for Multi Purpose Projects.
Plan 2 Part 2: SBA 504 Financing
The SBA 504 program allows business owners to access 90% LTV loans for the purchase or
construction of commercial real estate. The loan structure includes a first and a second mortgage
allowing for loan to values that are typically not available. The program also provides the
stability of competitive fixed interest rates. United Midwest offers up to 25 year term and
amortization, with first mortgage fixed rates starting at 6.25% and, through your local CDC,
second Mortgage fixed rates starting at 5.00%. The combined LTV is up to 90% and there are
no balloon payments
The SBA 504 loan program provides small businesses long-term, fixed-rate financing to acquire
major fixed assets for expansion or modernization. Projects are secured by a 1st and 2nd Deed of
Trust/Mortgage on General and Special Purpose commercial real estate, meeting SBA
qualifications, having a maximum aggregate Loan to Value between of 90%, depending on
program parameters.
For a free training web-based seminar on the 504, visit your local CDC or
www.coloradolendingsource.org and click on “webinars.”
Typical Project Structure:
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50% LTV Conventional 1st DOT/Mortgage
40% LTV SBA/CDC 2nd DOT/Mortgage
10% Equity Injection
SBA 504 Program Eligibility:
The Small Business Concern must be operated for profit and fall within the size standards set by
the SBA, which is a tangible net worth of less than $7.5 million and average net income that does
not exceed $2.5 million after taxes for the preceding two years. Loans cannot be made to
businesses engaged in speculation or investment in rental real estate.
Use of Proceeds:
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Purchasing land and improvements, including existing buildings, grading, street
improvements, utilities, parking lots and landscaping.
Construction of new facilities or modernizing, renovating or converting existing facilities.
Purchasing long-term machinery and equipment.
The 504 Program cannot be used for working capital or inventory, consolidating or
repaying debt, or refinancing.
Maximum Debenture (Second Mortgage from the CDC):
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$1,500,000 when meeting the job creation criteria or a community development goal.
$2,000,000 when meeting a public policy goal.
$4,000,000 for small manufacturers.
Debenture Rates/Fees:
Interest rates on 504 loans are pegged to an increment above the current market rate for five-year
and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total
approximately 3 percent of the debenture and may be financed with the loan.
Eligible Property Types:
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Office: Professional, Condominium, Medical, Dental and Veterinarian.
Industrial: Heavy and Light Manufacturing, Warehouse and R&D Flex.
Retail: General.
Special Purpose: Assisted Living Facilities / Adult Care, Day Care Facilities, Restaurants,
Funeral Homes and Hotels/Motels.
Maximum Loan Amount:
1st DOT/Mortgage – $4,000,000 and combined first and second is $6,000,000 for United
Midwest.
Rate Options:
Adjustable, Three (3) and Five (5) Year Fixed Loan Terms Available.
Maturity and Amortization:
Up to 25 years on the first mortgage, fully amortized.
Maximum LTV:
50% LTV on the first mortgage and 90% combined LTV based upon the Lower of Cost or
Appraised Value.
Minimum Debt Coverage Ratio:
1.25x Minimum Debt Coverage Ratio (“DCR”) is required for the most recent FYE and Interim
period. The DCR will be based on the underwritten EBITDA of the Small Business Concern.
Occupancy:
51% or greater must be occupied by the Small Business Concern.
Borrower /Guarantor Characteristics:
Prior Ownership and Management Experience.
Minimum FICO 680.
Recourse:
All loans are Full Recourse and require the personal guarantee of any and all individuals or
entities holding 20% ownership interest or more.
Interim Financing:
Often the transaction has to close before the debenture (second mortgage) has funded. United
Midwest offers up to $2,000,000 in interim financing for this purpose. The interim loan has a
120 Day Term and carries a variable interest rate based upon the published Wall Street Journal
(WSJ) Prime Index + 2.75%, interest only, to adjust quarterly.
Construction Financing:
Construction loans are available for multipurpose projects.
Plan 2, Part 3: USDA B&I Financing
The United States Department of Agriculture guarantees loans under a number of programs – the
most popular of which is the USDA B&I program. Eligible properties have to be in an “eligible
rural area. To determine quickly whether a location may be eligible for a USDA guarantee, go to
http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
The USDA Business and Industry program provides all of the same benefits as the 7a program
with a focus on rural communities. Midwest Business Capital helps small business owners in
rural areas to access capital to consolidated or refinance debts, improve existing facilities,
purchase or construct new facilities, purchase equipment and purchase inventory. USDA
guaranteed loans feature up to 25 year term and amortization, with rates starting at 5.50%. The
maximum LTV is 80% and there are no balloon payments.
The B&I Guaranteed Loan Program is designed to improve, develop, or finance business,
industry, and employment and improve the economic and environmental climate in rural
communities. Projects are secured by a 1st Deed of Trust/Mortgage on General and Special
Purpose commercial real estate, meeting USDA qualifications, having a maximum Loan to
Value of 80%, depending on program parameters.
For detail on the USDA B&I loan program and the other loan programs available for rural
community development, see http://www.rurdev.usda.gov/rbs/busp/b&i_gar.htm. The
discussion below will focus on Midwest Business Capital’s USDA program for banks that are
part of its wholesale channel.
To be USDA eligible, a borrower must be engaged in or proposing to engage in a business that
will:
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Provide employment;
Improve the economic or environmental climate;
Promote the conservation, development, and use of water for aquaculture; or
Reduce reliance on non-renewable energy resources by encouraging the development and
construction of solar energy systems and other renewable energy systems.
The borrowing entity must reside in a community (MSA) of 50,000 or less and the borrower
must have tangible balance sheet equity at the loan closing of no less than 10 – 20% for existing
businesses, 20% for new businesses, and 40% for energy or bio-based businesses.
USDA B&I Eligible Use of Proceeds:
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Purchase and development of land, easements, rights-of-way, buildings, or facilities.
Business conversion, enlargement, repair, modernization, or development.
Purchase of equipment, leasehold improvements, machinery or inventory.
To refinance existing business indebtedness that is not already structured with reasonable
terms and conditions.
Business and industrial acquisitions when the loan will keep the business from closing,
prevent the loss of employment opportunities, or provide expanded job opportunities.
USDA B&I Rates/Fees:
Interest rates are generally adjustable based, tied to the Prime Index. Maturities up to 30 years
are available, based upon the use of funds, but 25 years is typical and customary. Usual and
customary fees (legal, title, environmental, loan origination, appraisal, and survey, for example)
are permitted and the USDA collects up to a 2% guarantee fee. A 0.25% renewal fee is assessed
annually based on the outstanding principal balance.
Eligible Property Types:
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Office: Professional, Condominium, Medical, Dental and Veterinarian.
Industrial: Heavy and Light Manufacturing, Warehouse and R&D Flex.
Retail: General.
Special Purpose: Assisted Living Facilities / Adult Care, Day Care Facilities,
Restaurants, Funeral Homes and Hotels/Motels.
Maximum Loan Amount:
1st DOT/Mortgage – $4,000,000.
(The actual limit under USDA guidelines is $10 million, and higher in some circumstances.
However, the originating lender – in this case Midwest Business Capital, retains the uninsured
20% of the loan. Hence, individual lenders set their own guidelines.
Rate Option:
Prime Based Quarterly Adjustable.
Maturity and Amortization:
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Real estate – Up to 30 Years although 25 is typical.
Equipment acquisition – Up to 15 Years
Permanent working capital – Up to 7 Years
**Blended Maturity and Amortization applicable.
Maximum LTV:
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Real estate – Up to 80% LTV
Equipment acquisition, Permanent working capital & debt refinancing up to 60% LTC
fully collateralized.
Minimum Debt Coverage Ratio:
1.25x Minimum Debt Coverage Ratio (“DCR”) for the most recent FYE and Interim period. The
DCR will be based on the underwritten EBITDA of the Small Business Concern.
Borrower /Guarantor Characteristics:
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Prior Ownership and Management Experience.
Minimum FICO 665.
Recourse:
All loans are Full Recourse and require the personal guarantee of any and all individuals or
entities holding 20% ownership interest or more.
Loan Limitations:
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Debt refinancing: The refinancing must create new jobs or secure existing jobs (e.g., by
improving cash flow).
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Transfers of ownership: Acquisitions are only eligible if they create new jobs or prevent
job loss.
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Commercial lease projects (retail centers, office buildings, industrial facilities, etc.):
Needn’t be owner-occupied, but must have enough committed tenants to break even.
Construction Financing:
Available for Multi Purpose Projects.
Plan 3: Accounts Receivable Secured Working Capital Lines
Today’s businesses need working capital. But unless you have a comprehensive loan policy, and
experts to monitor and service, working capital lending is not something you consider. Unless,
of course, someone else wants to do the job and pay you for the origination. And in that context
we invite you to meet Atlanta’s FTrans.
Through partnerships with banks, FTrans (www.ftrans.net) offers businesses greater access to
capital and increased efficiency through funding using their AR as collateral and by outsourcing
their accounts receivable and credit administration processes so that their AR is transparent and
track able.
FTrans was started in 2004 by John B. Hayes, co-founder of Peachtree Accounting Software
Headquartered in Atlanta, the Company has about 25 employees, approximately 160 clients and
approximately 16,000+ Client Buyers (all 50 states, 34 countries)
FTrans currently has over $100 MM in Loan Commitments Outstanding and has processed over
$750 Million in invoices. In most cases, FTrans can help your customer reduce the time it takes
to collect from their buyers.
FTrans’ partners and investors include Total Technology Ventures, New Atlantic Ventures, and
Greenhill SAVP.
FTrans Program advantages:
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Maintain your banking relationship with the business, and keep deposit accounts and
ancillary business. FTrans is a credit company, not a bank.
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Provide lending alternative for customer without incurring cost of traditional lending
relationship
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You have no loan loss reserve requirements
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No internal cost for monitoring and managing credit relationship
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Best of all, you Receive approximately 80 bps annually on line out standings, which
frequently exceeds earnings on small business C&I loans
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Your bank can improve capital ratios by deleveraging C&I loans and releasing reserves
Borrower Benefits
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Accounts receivable secured working capital is a credit alternative for the borrowing
company
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The borrowing company reduces its cost and risk by outsourcing accounts receivable
functions to FTrans. FTrans collects receivables, pays down the line as needed, grades
accounts and does all the reporting.
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FTrans provides credit administration for the business
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FTrans takes over the collections processes
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FTrans provides a lockbox for payment receipt and processing
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The working capital line means access to more capital based on the company’s growth
needs
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The line means increase sales by offering more credit to buyers
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The line is basically non-recourse to the company, with exceptions for fraud and
negligence and breach of covenants because it is secured by accounts receivable.
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FTRANS service is less expensive than accepting a credit card for payment
FTRANS underwriting criteria
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Borrowers with significant A/R balances due from approved account debtors
No progress or contingent billing (excludes many contractors)
Account debtors must be approved
Minimum ratings for domestic large companies and government entities
Minimum Equifax small business credit exchange scores for domestic companies
Third-party credit insurance for others, including international
Account debtor consent not required
Sufficient information on accounts debtors is usually available publicly
FTRANS must be able to purchase accounts free of liens or other claims
Loan balance: $100M to $2MM
Contact Information:
Daniel H. Drechsel
Chief Executive Officer
Phone: 678 268 3316
www.ftrans.net
Plan Four: Residential Originations
These are difficult times to be in the mortgage business – but nonetheless, mortgages are an
essential member/customer service and there are basically three delivery tracks:
Track 1: Traditional Mortgage Banking
Become a mortgage banker delivering directly to a government loan pooler and to
FNMA/FHLMC or their successors. We won’t be discussing mortgage banking here due to the
expense, human resources load, credit risk and interest rate risk inherent to the business. The
risk/reward ratio in the current slow, tight credit market favors a less ambitious approach.
Track 2: Collect Rent, Let Someone Else Mind the Store
Rent space to a reputable, well established, experienced mortgage banker, creating a fixed
income stream from underutilized office space. This rent needs to be at market due to current
RESPA laws. Let’s assume a 200 square foot office and the price of $25 a square foot and three
separate locations income would be $15,000 a year. Liability to the institution would be
extremely low in this scenario and the mortgage banker would do all of the originating,
processing and closing of the loan. This option also allows for us to originate all the different
types of loans mentioned above.
Megastar Financial is a good example of a company you might consider renting retail space to.
Founded in 1999, Megastar has a reputation for quality and integrity and is one of the fastest
growing and privately held mortgage companies in Colorado. To date, the Company has funded
over 10 billion dollars in loans. Megastar is considered a full service Mortgage Banker. They
underwrite and close loans in their own name then sell to the secondary market to lenders such as
Bank of America, GMAC, and JP Morgan Chase. The Megastar service proposition includes
loan approval within 24 hours of application, in-house closing and document draw; a pricing
engine that enables them to choose the best pricing for the customer from multiple investors,
and careful tracking for all contract dates and with a commitment to having figures to closing
three days before closing. Megastar also has an automated notification system that sends updates
to parties involved in the loan transaction.
Track 3: Retailer, Meet Wholesaler
Choice three is to become a retailer and originate for a wholesaler like Megastar. Under RESPA
and related legislation, for any institution or individual to earn a fee for a referral there are
certain duties and services you need to provide, known in the trade as the Duties of the
Originator. Your institution would need to gather information from the borrower and fill out the
loan application and perform at least five of the tasks listed below.
1. Analyze the prospective borrowers’ income and debt and pre-qualify the client to
determine the maximum mortgage that the prospective borrower can afford.
2. Provide education to the borrower about the home buying and financing process. Inform
the borrower about the different types of loans and products available and explain how
closing costs and payments vary with each product.
3. Collect all financial information (tax returns, bank statements) and other related
documents that are part of the application process.
4. Initiate verification of employments and deposits.
5. Initiate requests for mortgage and other loan verifications
6. Order appraisals
7. Order inspections or engineering reports
8. Provide disclosures (truth in lending, Good Faith Estimates, and the required Colorado
specific disclosures to the borrower)
9. Assist the borrower in understanding and clearing credit problems
10. Maintain regular contact with the borrower, realtor, and lender during the application and
closing process and inform them of the status of the loan.
11. Gather additional documentation as needed
12. Order legal documents
13. Order a flood certification
14. Participate in the loan closing
15. Share other activities as appropriate to ensure a smooth transaction for the customer and
satisfy RESPA requirements.
Megastar has had success with other institutions by selecting the appropriate employees and
providing adequate and ongoing training. A referral fee can be paid in this situation.
Megastar and we would require representations and warranties against fraud and
misrepresentation. This option requires a wholesale agreement and applies only to conventional
loans. FHA and VA transactions are excluded.
For More Information on this topic:
Brian J Sample
Megastar Financial Corporation
Licensed Mortgage Loan Originator
9035 Wadsworth Parkway Suite 2730
Westminster, CO 80021
Phone:303-429-7310
Fax: 1-866-954-0178
www.sampleloans.com
www.megastarfinancial.com
NMLS #186710
www.dora.state.co.us
[email protected]
Part Five: Multifamily Lending Part Five: Multifamily Lending
Apartment Bank, a division of Bank of Internet USA (NASDAQ:BOFI) has a popular balance
sheet fee generating multifamily platform with very competitive rates.
The Metropolitan Program which includes the areas of Boston, Chicago, Denver, L.A./Orange
County/San Diego (Coastal Southern California), Minneapolis/St. Paul, New York City (Metro),
Portland, Salt Lake City, San Francisco (Bay Area), Seattle and Washington DC.
The Nationwide Program includes all other major markets. Please also take note that we have
eased back on maximum leverage for the Nationwide Major Metro Program (although
exceptions may be considered for exceptional transactions).
Program Highlights:
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Minimum $250,000 loan size
Maximum loan size $5,000,000.
Major metropolitan markets only; smaller markets may be acceptable with experienced
borrowers and increased rate/spread.
Loans for older properties or deals that have a 'story' will be risk based priced: increased
25-100 bps.
Cash out refinance requests are typically limited to 50% maximum.
Stable current and historic cash flow is generally required. Properties recently stabilized
may be acceptable with exceptional sponsorship. Rate adds may apply to mitigate market
risk.
Borrower should be solid: market experience, liquidity, net worth, personal credit.
Full recourse generally required for all Managing Members, General Partners, Corporate
Officers and individuals owning 25% or more. Exceptions may be made but no less than
one key principal required as a guarantor of the loan subject to approval from bank and
authorization from borrowing entity.
Program generally requires credit scores of 680 or better.
Rebates are only paid to banks in good standing with the appropriate state governing
authorities (as applicable) to a maximum of $10,000 per transaction.
Rate is locked when loan documents are drawn; no advance rate lock is available.
Items needed for formal Letter of Interest consideration:
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Detailed personal financial statement or 1003 loan application.
Detailed schedule of real estate owned.
Last two years personal tax returns.
Recent credit report or signed Bank of Internet credit authorization.
Resume or bio.
Purchases generally require Income & Expense statements (operating history) for subject
property for 2008, 2009 and year to date 2010.
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Refinances require borrowing entity tax returns for two previous years (if subject is held
under in an entity). If 2007 & 2008 are provided then a 2009 Income & Expense
statement is also required along with a 2010 year to date Income & Expense statement.
Current detailed rent roll including unit mix.
Photos of subject property: front & rear; interior; neighboring properties; street scenes.
Vesting map or thorough understanding of borrowing entity ownership breakdown.
Purchases: sales contract, escrow instructions (in applicable markets) and leases (if
available).
Refinances: statement of purpose or 'sources and uses' of loan proceeds analysis.
Contact Information:
Keith Nisenson
Apartment Bank / Bank of Internet USA
Multifamily Lending
12777 High Bluff Drive, Suite 100
San Diego, CA 92130
(815) 893-0866
(858) 764-9990 fax
Part Six: Next Steps
Our intent in this paper was to present five different strategies to help your financial institution
improve fee income. We wanted to be specific, give you the terms, and the people to contact to
find out more. Of course, there are hundreds of strategies out there.
Whichever path you choose, the key questions in evaluating each strategy are the same.
1.
2.
3.
4.
5.
Does this product fit my customer base?
How reliable is the vendor?
Are there other vendors I should interview?
Do they provide training?
Which of my team members will provide the lead with this product? Who is the
appropriate product line manager and advocate?
6. Does this strategy have an impact upon headcount or can existing staff be used?
7. What are the ramifications for budget?
8. What exposure do we have from a “representations and warranties” standpoint?
9. Is this project in line with regulations? What will the examiners say?
10. Which product line(s) offer the best return for the investment of time and dollars?
For more information, we urge you to get in touch with the vendor directly. Our thanks to the
vendors who edited, co- wrote and participated in this project
1. Wealth Management: Gail Frances, email [email protected],
Telephone 303-721-7000.
2. SBA/USDA: Jason Charles, email [email protected], telephone 801-214-6151
3. Working Capital Lines: Dan Drechsel, email [email protected], telephone 678268-3316
4. Residential Origination: Brian Sample, Megastar [email protected]
(303) 429-7310
5.
6. Multifamily Origination: Keith Nisenson, email [email protected],
telephone 815-893-0866
Epilogue: The Pristine Portfolio Theory
From American Banker, Thursday, September 9, 2010:
FDIC Head Calls for Tighter Lending Standards
Banks seeking government guarantees for mortgage debt should be required to hold borrowers
to tight and consistent standards, Federal Deposit Insurance Corp. Chair Sheila Bair said in a
CNBC interview.
Bair said standards should include "very robust" income documentation, proof of a borrower’s
ability to repay standard loans, and a significant down payment.
That is the environment we live in after the subprime and commercial real estate meltdowns.
Which begs the question: If you were starting a new bank today on a fee for service model, what
would that bank look like? Here’s a compendium of ideas I call the fortress theory, or the
Pristine Portfolio Theory. It ties in nicely with having multiple sources of non-interest income
that do not depend upon credit exposure.
(1) Our new bank will be financially strong enough to withstand stresses in the capital
markets just like the 2008 meltdown and come out fine.
(2) Loan demand is tepid at best. We can grow loans by (a) continuing to book top
quality well collateralized owner-user business loans and other credits with strong
sponsorship and cash-flows, as long as we have the banking relationship. (b) And
we can continue making consumer and residential loans albeit with strict no
nonsense underwriting standards. But to grow our portfolio without principal and
interest risk we can also rely upon adding 20% risk weighted assets such as USDA
and SBA loan guarantees. Granted, guaranteed loans have premium risk. But we
can pick andxchose, using our own underwriting standards, the loans likely to stay
on the books and hence avoid prepay risk by buying guarantees only to healthy
companies with established cash flows in NAICS classifications that have low default
rates.
(3) Our core foundation will be rated investment grade assets the risk weight of almost
all of which, except for that high risk bucket of whole loans, is 50% or under. That
portfolio may consist of an appropriate ladder of bank qualified investment grade
tax exempt bonds (primarily secondary market offerings and odd lots which offer
higher yields and greater diversity, quite often, compared with the glamour of new
issues). Other assets will include Agencies, Build America Bonds) and some zero
risk weighted SBA pools which reprice quarterly or monthly to match our DDA and
other short repricing liabilities.
(4) We will use the best conservative investment strategies we can, within the few asset
classes in which we are allowed to invest, so that after tax returns are as high as
they prudently can be and asset credit risk is de minimus, and the examiners walk
away early and happy.
(5) Inasmuch as our credit officers cannot foretell the future for a single corporate or
individual credit based upon past performance, even for our best clients, we take the
position that loans are, only to be extended with a thorough understanding of the
customer and the Five C’s of Credit, and then only with a significant banking
relationship.
(6) We will be experts in secondary marketing and originate, except for those limited
loan exposures we HAVE to take for the higher risk bucket of our portfolio, only
what we can sell at a profit and without buybacks or other onerous reps and
warranties in the secondary.
(7) We will co-originate loans and operating lines, which means that we will originate
them for others, never allow them to touch our books, and keep the fees.
(8) NII (Non interest income) will be more of a focus for us than chasing risk for NIM
(Net Interest Margin). To that end we will train our calling officers and maintain a
central concierge desk staffed with experts in multifamily, SBA, working capital,
leasing, Life Company commercial, and conforming residential, FHA and VA lending.
They will broker transactions, seamlessly and professionally, at prices no higher
than the customer would experience with a top tier professional in each discipline,
to investors who are nonbanks and who will not encroach upon our deposit
relationships, so that our customers have the benefit of a full service old fashioned
merchant bank.
(9) The word “seamlessly” in this context means that our customer will have hands on
expert advice and service from our concierge desk start to finish, at a fair and
reasonable and market price. The service proposition will be similar to the old
fashioned private banking and syndication services offered by private banker’s
decades ago. We will quite simply aim to find each customer the VERY best loan at
the very best price, for a fixed fee, in the market and we will facilitate each step for
that customer.
(10)
We are not mortgage bankers. Warehouse lines are fraught with collateral
risk, interest rate risk and administrative burdens we do not want to take on. They
violate our core asset strategy (Rule #2). We will table fund loans (that is to say,
allow an investor to fund in our name) with the right investor and risk profile, but
we will not offer mortgage banking lines of credit as a business, nor do we want to
manage a mortgage company and deal with compliance, loan servicing, interest rate
risk, and the reps and warranties we have to make. Instead, the service we sell is
our incredible depth of experience and quality of loan packaging, the reliability of
the investors we have, the reliability of those investors once an application is issued,
and the degree to which we assist start to finish in making the borrowing experience
seamless and as pleasant as possible, beginning to end, for the customer whether
he/she is a first time homebuyer, a small business, a middle market business, or an
apartment owner.
(11)
We are not interested in the risk exposure involved with SBA CLP or PLP
approval. We will professionally package SBA 7A and 504 loans as a consultant, and
other investors will fund and own them. We will keep the 1% to 2% premium and
the consulting fee.
(12)
The same goes for HUD, Freddie Mac (FHLMC), and FNMA (under whatever
guise they survive). We have no interest in owning residential whole loans or any
percentage risk on multifamily loans. We will originate, for a fee, for the DUS and/or
HUID approved mortgage bankers who wish to take on that risk.
(13)
We will, by and large, clip coupons from our growing pristine core
investment grade portfolio while we expand and refine our outside placement
service model. While doing so we will search for new opportunities every day in fee
based financial services, such as financial planning, which expand our range of
customer product offerings, build our appeal and reputation in the market, and be a
fortress bank with a pristine portfolio.
About the Author:
Tim Thomas is a specialist in low risk weighted assets for banks and other financial institutions.
Low risk weighted assets include taxable municipal issues and Build America bonds (50% risk
weight), tax exempt bank qualified municipals (50% risk weight), USDA and SBA guaranteed
loan (20% risk weight), SBA pools (0% risk weight) and Agency securities (0% risk weight).
Tim Thomas joined Isaak Bond Investments, Inc., in May, 2010 after two years in the SBA and
the nationwide commercial secondary markets division with Bank of the West (a subsidiary of
BNP Paribas) and 25 years in corporate and real estate finance.
Prior to Bank of the West, Tim served as a senior loan officer, analyst and correspondent channel
manager with IMPAC, a real estate investment trust based in Southern California, where he
headed multifamily mortgage origination in nine States.
Tim holds a Series 7 securities license. He is a graduate of Santa Clara University with a degree
in economics and political science, with an emphasis in public finance. Tim is a member of the
Colorado-Wyoming Chapter of CCIM. He is a frequent guest speaker and honorary instructor
in at the University of Denver’s Burns School of Real Estate. Tim is active in Rotary, teaches
high school debate, Junior Great Books, and is a volunteer with the Channel 9 Health Fair. A
native of Denver, Tim resides with his family in Centennial, Colorado.
His previous white papers:
Government Guaranteed Loan Investment Strategies for Community Banks
The Risks and Returns of Government Guaranteed Loan Investments for Credit Unions
About Isaak Bond Investments Inc.
Isaak Bond Investments is a 33 year old institutional municipal broker dealer based in Denver.
Isaak Bond Investments is a member SIPC and licensee under FINRA. They provide bonds for
a number of nationally known, very large municipal bond funds, community banks, trust
departments and institutional investors. Isaak Bond Investments makes a market in SBA and
USDA guarantees, taxable (Build America) municipals; bank qualified tax exempt municipal
bonds, agencies, and rated general obligation and revenue bonds. Isaak Bond trades in the
secondary bond and government guaranteed loan market, where they believe additional yields
are available for community banks, credit unions, insurance companies and individual investors.
For More Information:
Timothy E. Thomas
Registered Representative
Isaak Bond Investments, Inc.
600 17th Street
South Tower, Suite 2610
Denver, Co. 80202
Tel (800) 279-4426
Tel (303) 623-7500
Cell (303) 656-3232
Fax (303) 623-8120
EM [email protected]